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Survey: Advancements in leadership, talent, and innovation limited by misalignment of investments, priorities, and incentives

Deloitte business confidence report 2016

New York, May 4, 2016 — For the second year, Deloitte’s Business confidence report reveals that America’s top leaders, chief executive officers (CXOs) and chief executives-in-waiting (CXOWs), the latter including those who are next in line to the C-suite, have a very high level of confidence despite global volatility. Results show 69 percent of CXOs and 56 percent of CXOWs feel very confident they will outperform the competition in the next year, compared to 66 percent of CXOs and 63 percent of CXOWs in 2014. However, some doubts are emerging as executives, particularly those just outside the C-suite, struggle with how to transform their businesses and disrupt their industries in an unstable and increasingly competitive marketplace.

This year’s report titled Deloitte business confidence report 2016: The bold organization—innovate, lead, attract took the pulse of 600 of America's top business leaders and examined their levels of confidence on key business issues. The report examines how the confidence level of leaders shifts in relation to the priorities of innovation and technology, the need for bold leadership, and increasing pressure to find, develop, and retain the right talent. C-suite leaders cited rapid technology changes, talent skills gaps and a lack of investment in their own products and processes as their top concerns in the survey.

In order for business leaders to transform their organizations, they have to look more broadly across the organization and align changes, incentives, and investments with their priorities—even across organizational silos. Our survey shows that there are opportunities to carry desired changes through every element of a company’s business model rather than just focusing energy in one or two areas. A more holistic approach will create new opportunities to outperform in an environment where competition is increasingly fierce.

– Janet Foutty, CEO and chairman of Deloitte Consulting LLP

Survey responses revealed that while business leaders are focusing on key areas of concern to transform their organizations through innovation, bold leadership, and talent, they are still not comprehensively integrating strategies across the organization.

Innovation: The C-suite’s narrow approach

The report found C-suite leaders repeatedly exhibit inconsistencies when it comes to prioritizing and investing in innovation. Executives stated that besides their own leadership, their ability to innovate more than competitors is the highest source of their business confidence. However, survey results show that business leaders are taking a particularly narrow view of innovation, which could hinder their efforts.

  • When leaders prioritize innovation, they almost exclusively focus on product and services (51 percent of CXOs and 54 percent of CXOWs) or customer experience (48 percent CXOs and 57 percent of CXOWs) and are missing critical opportunities to explore innovation outside of these boundaries. For example, only about one in four companies are focused on investing in other key innovation areas including staff, organizational models, and business process.
  • Although executives say innovation is a major priority, more than half of CXOs (53 percent) and 44 percent of CXOWs are not prioritizing investments in employee recruitment and retention needed for new and different skills their companies require to foster innovation. Subsequently, business leaders are not rewarding their employees for innovation breakthroughs, as only 50 percent of CXOs and CXOWs say they are awarding innovation, and only 41 percent of CXOs and 40 percent of CXOWs offer compensation and promotions to those who take risks. However, that’s still an increase from 2014, when 36 percent of CXOs stated they were incorporating contributions to innovation in performance reviews.
  • The report shows that the passive innovation strategy most C-suite executives are implementing, which is centered around making the same, traditional business investments they have made for years, is not actually leading to innovation. It allows only for incremental change and does not foster the disruption today’s businesses need to avoid becoming obsolete.
  • In 2014, 45 percent of CXOs said they were allowing time for employees to innovate and 42 percent are adopting new technologies. In 2016, that has increased as 51 percent of CXOs stated they are offering at-work training on new technologies, displaying investment, and priority improvements in innovation and technology training, but that still means nearly one in two (49 percent) are not offering this training to staff.

Talent “brain drain” looming

As the war on talent continues and the C-suite looks for new ways to come out on top, business leaders are now faced with another major problem—a “brain drain” of their superstars. According to the 2016 report, C-suite leaders are very concerned that their most talented might leave before they take senior management positions available at their companies. Sixty-three percent of CXOs and 80 percent of CXOWs feel that one in three—or more—of their best managers will leave before joining their senior ranks.

  • Eighty-eight percent of CXOs and 93 percent of CXOWs believe the rapid pace at which technology and the markets are changing is creating a skills gap at their companies. Nearly half of these same executives also feel the gap is not being adequately addressed (44 percent of CXOs and 46 percent of CXOWs). However, a majority of CXOs and many CXOWs (almost half of them) are not prioritizing investments in employee recruitment and retention to address the need for new and different skills at their companies. This echoes a similar finding in “Strategy, Not Technology, Drives Digital Transformation,” a recent study Deloitte completed with MIT Sloan Management Review, which found that this skills gap is even larger among less digitally mature organizations.
  • Fifty-four percent of CXOs and 60 percent of CXOWs cite that the desire to work with more advanced technologies is the top factor that will drive away their best managers to a new company. Fifty-two percent of CXOs and 57 percent of CXOWs highlighted the desire to work for a more innovative company as the second highest reason why top talent is likely to leave before they reach the management ranks at their current company. These themes also emerged in the Deloitte and MIT Sloan Management Review study, which found that over 72 percent of employees across all age groups want to work for an organization that is digitally enabled or is known as a digital leader.
  • Executives also say there is a significant variation of “in demand” skills needed at their companies, with a shift from technical skills towards “soft skills” that are often hard to find and even harder to cultivate. CXOs and CXOWs specifically identified the ability to quickly develop expertise (57 percent and 56 percent respectively), work across multiple roles (51 percent of each), and work with advanced technologies (50 percent and 52 percent respectively) as the top skills in demand for their business.
  • In 2016, 72 percent of CXOs stated they are training current employees to develop new skills to promote innovation. As the demand for innovation has increased, so has the demand for training. In Deloitte’s 2014 report, 39 percent of CXOs said they were providing ongoing employee training and development programs in regards to what the organization is doing to foster or drive innovation.

The bold leadership requirement

In the face of today’s challenging business environment, nearly all executives agreed that bold leadership is required to transform challenges into opportunities for growth. For the 2016 report, Deloitte identified the following six qualifiers to define “bold leadership”: sets ambitious goals; invites feedback from colleagues at all levels of seniority; innovates and looks for new ways of doing things; proposes ideas their company might consider controversial; takes risks; and builds strong teams and empowers them to succeed.

  • Survey results show that executives overwhelmingly agree (97 percent of CXOs and 98 percent of CXOWs) that breakthrough performance requires bold leadership. However, most companies are not cultivating bold leadership traits and nearly all leaders (9 in 10 CXOs and CXOWs) admit to not regularly demonstrating all aspects of bold leadership.
  • Despite the fact that nearly all leaders say bold leadership is a “must have,” when ranking their own performance as a bold leader, fewer than half of CXOs (48 percent) and CXOWs (47 percent) feel they demonstrate these qualities all or most of the time.
  • In 2014, 48 percent of CXOs and 41 percent of CXOWs said their direct reports had the skills to become part of the C-suite in the organization. Those concerns have remained largely consistent in the 2016 report, as 46 percent and 44 percent of CXOWs stated that they definitely have an adequate supply of qualified and rising leaders.
  • Similar to the findings of the first report, this year’s survey results also show that the leadership pipeline for the C-suite is lacking. More than half of CXOs (52 percent) and CXOWs (61 percent) believe they may not have enough bold leaders in the highest ranks at their companies. The pool of future bold leaders also appears to be less than adequate, as only 44 percent of CXOs and 36 percent of CXOWs said that their rising executives successfully demonstrate bold leadership all or most of the time.
  • When it comes to recruiting the next generation of bold leaders, 54 percent of CXOs and 67 percent of CXOWs stated they are not emphasizing bold leadership skills in recruitment.

“Being a bold leader is about having the confidence to make decisions that disrupt and therefore transform your business, preparing it for the future. It’s also about taking an integrated approach to decision making,” said Foutty. “As the survey shows, a more united and collaborative approach to change would create greater coherence across the organization. These bold leadership perspectives are not easy to adopt, but without a 360-degree approach, innovation and transformation progress will remain stuck in neutral."

About the Survey

The Deloitte Business confidence report 2016: The bold organization—innovate, lead, attract survey was conducted among two groups: 1) 300 US "CXOs," defined as US adults employed full-time with C-level titles at companies with 1,000 or more employees, and 2) 300 US "CXOs-in-Waiting," defined as US adults employed full-time, with a professional title of SVP, executive VP, or equivalent, at companies with 1,000 or more employees, who will likely be promoted to a C-level position in the next 5-10 years. All survey respondents also had a college degree or advanced degree.

The survey was fielded between November 18 and December 16, 2015, using an email invitation and an online survey.

Follow us at @DeloitteUS for further insights from the 2016 Deloitte Business confidence report and to participate in the #CXOConfidence conversation.

About Deloitte Consulting LLP

Deloitte helps organizations grow their businesses and enhance value by identifying actionable insights. More than 23,000 professionals provide a broad range of capabilities across human capital, strategy and operations, innovation, and technology that are aligned to the particular needs of specific sectors, businesses, and organizations. Deloitte provides clients with leading business insights that can help generate a tangible and measurable impact.

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